|2023/02/14 / Erste Group Research|
Romania Special | Romania's C/A deficit to adjust in 2023
Romania’s C/A deficit widened to -9.2% of GDP in 2022 vs. -7.3% of GDP in 2021. While the C/A deficit is a structural issue related to the weak competitiveness of the export-oriented manufacturing sector, some one-offs such as the jump in import prices for commodities account for a large part of the recent widening in the C/A deficit. Lower commodity prices on average in 2023 vs. 2022 and the further reduction of the budget deficit are supportive for a correction of the external imbalance to around -7.9% of GDP in 2023.
The real effective exchange rate shows a loss of price competitiveness in 2022, as the RON was virtually flat in nominal terms and the inflation differential widened. Our econometric models show that the C/A balance is more sensitive to movements in REER relative to changes in household consumption and gross fixed capital formation.
The adjustment of the C/A deficit is likely to be accompanied by a slowdown in economic growth to +2.1% in 2023 vs. +4.8% in 2022. Household consumption could decelerate faster than gross fixed capital formation, as the former is pressured by the lagging effects of negative real wage growth, while the latter benefits from record-high inflows of EU structural, cohesion and RRF funds projected at around 4.0% of GDP. Hence, a lower C/A deficit in 2023 could come in the form of an increase in the domestic saving rate coupled with a levelling off in the domestic investment rate.
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|Author||Erste Group Research|
|Product name||CEE Economies Special Report|
|Topic in focus||FX, Macro/ Fixed income|
|Economy in focus||Romania|
|Currency in focus||Romanian Leu|
|Sector in focus||-|
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